Monday, September 10, 2007

HKSAR Government is Grossly Obese

David Webb has written a well-analysed piece on Webb-site.com on the SAR government's hoarding up on Hong Kong equities, the most recent purchase being of shares in Hong Kong Exchanges & Clearing (HKEx):-

"Whatever the real reasons for the Government's purchase, it sends a very negative signal to the market as a whole, and increases uncertainty. Until now, the Government had not visibly intervened in the market since 1998. How much of HKEx do they intend to buy, and when? Will they tell us if they have bought or sold more? Are they willing to underpin the share price with further purchases if the stock falls? What other stocks do they intend to buy?

The increasing exposure of the Exchange Fund to HK Equities, now estimated at HK$150bn (before the increase in HKEx) or 3.2% of the free float of each company in the HSI, is also worrying on two levels. First, it puts the Government in a position of conflict of interest in relation to the companies it invests in at the same time as dealing with them, taxing them and regulating them, and second, it also means that in the event of a financial crisis in HK, the Exchange Fund will be piling up investment losses at the same time.

On conflicts of interest, take, for example, the electricity companies with which the Government is negotiating a new scheme of control which may reduce their fat returns, or the property developers with which it negotiates land premiums, or the telecom company it regulates on interconnection tariffs with mobile operators.............

There really is no need to have any equity exposure at all. We often have to call on listed companies to return surplus capital to shareholders rather then punting the stock market. The same applies to the Government: it has surplus funds and should return them to the community in the form of revenue reductions (tax, rates and duties), not invest them in the market. If the Government were a person and money were fat, then this patient is grossly obese............

This ridiculous hoarding of public wealth cannot continue indefinitely. It's time for a complete rethink of the Government's financial management."